Two departments: Individuals who put their assets into offshore trusts and obtain income through offshore trusts should report and pay individual income tax.

Golden Finance News reported that on July 24, the Ministry of Finance and the State Taxation Administration issued an announcement clarifying matters related to individual income tax for offshore trusts. According to the announcement, when residents place assets into offshore trusts and the offshore trusts generate income during their existence period, the income must be reported and individual income tax must be paid in accordance with relevant regulations.

The announcement addresses individual income tax matters in different stages of offshore trusts’ establishment, existence, and termination. For example, at the establishment stage, when an individual resident places assets into an offshore trust, the taxable income is calculated as the balance after deducting the original value of the asset and reasonable expenses from the market value of the assets placed into the trust. Individual income tax will be levied on this under “property transfer income,” applying a 20% tax rate.

For another example, at the existence stage, for income generated during the offshore trust’s existence period from assets placed by resident individuals, tax will be calculated annually according to the nature of the income as either “property transfer income” or “interest, dividends, and bonus income,” with a 20% tax rate.

At the same time, the announcement clarifies matters concerning how taxpayers handle tax filing, and makes provisions for reporting and paying unpaid taxes for offshore trusts established before the announcement was released. According to the announcement, offshore trusts established for more than 3 years will no longer have establishment-stage taxes recovered. Income at the existence stage must be reported regardless of when the trust was established, but a 3-month filing grace period is granted; during the grace period, filing is exempt from the collection of late-payment penalties.

It is understood that under China’s Individual Income Tax Law, individual residents’ income obtained from within and outside the country, as well as non-residents’ income obtained within the country, are all subject to individual income tax. This is also the common practice in major countries and constitutes an international norm.

Experts said that the two departments’ clarification of individual income tax matters for offshore trusts is designed to fit the current, gradually more mature tax administration conditions, which is conducive to improving tax certainty and transparency and stabilizing taxpayers’ expectations. It is also beneficial for promoting social fairness and safeguarding national interests. (Xinhua News Agency)